Do They Work Hard For the Money?

As a lot of us are doing, Paul Krugman looks at a new report on the 25 wealthiest hedge fund managers and sees a morality tale to counter the morality tale we’ve so often been told about the righteous claims of the wealthy to the money–all the money–they have so (no pun intended) richly earned.

Krugman peels these claims like the skin of an onion:

Apologists for soaring inequality almost always try to disguise the gigantic incomes of the truly rich by hiding them in a crowd of the merely affluent. Instead of talking about the 1 percent or the 0.1 percent, they talk about the rising incomes of college graduates, or maybe the top 5 percent. The goal of this misdirection is to soften the picture, to make it seem as if we’re talking about ordinary white-collar professionals who get ahead through education and hard work.

But many Americans are well-educated and work hard. For example, schoolteachers. Yet they don’t get the big bucks. Last year, those 25 hedge fund managers made more than twice as much as all the kindergarten teachers in America combined. And, no, it wasn’t always thus: The vast gulf that now exists between the upper-middle-class and the truly rich didn’t emerge until the Reagan years.

Second, ignore the rhetoric about “job creators” and all that. Conservatives want you to believe that the big rewards in modern America go to innovators and entrepreneurs, people who build businesses and push technology forward. But that’s not what those hedge fund managers do for a living; they’re in the business of financial speculation, which John Maynard Keynes characterized as “anticipating what average opinion expects the average opinion to be.” Or since they make much of their income from fees, they’re actually in the business of convincing other people that they can anticipate average opinion about average opinion.

But regardless of how you assess the economic contributions or moral quality of the things people do to become crazy rich, over time they tend to lose these qualities and simply become assets that generate still greater riches.

At first sight, this may not be obvious. The members of the rich list are, after all, self-made men. But, by and large, they did their self-making a long time ago. As Bloomberg View’s Matt Levine points out, these days a lot of top money managers’ income comes not from investing other people’s money but from returns on their own accumulated wealth — that is, the reason they make so much is the fact that they’re already very rich.

And this is, if you think about, an inevitable development. Over time, extreme inequality in income leads to extreme inequality of wealth; indeed, the wealth share of America’s top 0.1 percent is back at Gilded Age levels. This, in turn, means that high incomes increasingly come from investment income, not salaries. And it’s only a matter of time before inheritance becomes the biggest source of great wealth.

That is, of course, the conclusion reached by French economist Thomas Picketty in his increasingly famous book (reviewed at WaMo by Kathleen Geier) Capital in the Twenty-First Century. Picketty prescribes global progressive taxes as a way to reverse this trend towards concentrated unearned wealth. You can object to his agenda on economic or political grounds, as many left-of-center writers have done. But the root argument is over the moral underpinnings of inequality, and on that point the extraordinary success of the financial community–and its least obviously “productive” wing–even as the rest of us sort through the damage it has so recently done, is a data point not easily refuted.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.